In 1976, the first electronic pre-paid phone card was introduced by the Italian
national phone company SIP. The introduction of the phone card was brought about by an extreme
shortage of coins in the country which led to a rash of payphone thefts. The Italian phone
card used a magnetic stripe, similar to those found on credit cards, and required the use of
a payphone specially equipped with a magnetic card reader. The first of these specially equipped
phones appeared in the Rome area, but soon spread to outlying areas as Italians adopted the
pre-paid phone card in lieu of the scarce coins. Similar phone cards appeared in neighboring
nations in the ensuing years, and enjoyed modest popularity throughout the European continent.

In 1982 Japan's Nippon Telephone and Telegraph introduced the first Japanese
pre-paid phone card to make calling more convenient for the tens of thousands of daily subway
riders in Osaka and Tokyo. Like its European counterparts, the Japanese pre-paid cards relied
on a magnetic strip and specially equipped telephones. Nonetheless, Japanese consumers quickly
snapped them up, preferring the convenient cards to the clunky 500 yen coin.

Prepaid Phone Cards Come to the U.S.

In 1990 New York's RBOC, Nynex released the first pre-paid calling card that used PIN authorization
instead of the magnetic stripe popular for so long in Europe and Asia. Nynex's card permitted
the cardholder to dial an 800 number and enter his PIN to make long distance phone calls.
This method permitted to make phone calls from any telephone anywhere in the U.S. without the
need for coins or incurring hotel surcharges, encountering call-blocked numbers, or any of
the other additional items routinely tacked on to public phones. By 1992 all of the major
regional and long distance phone companies, as well as a number of the smaller carriers had
entered the pre-paid phone card fray. Industry-wide revenues reached $12 million with projections
calling for double that over the next several years. Industry projections turned out to be far
lower than the market's actual growth, however. Phone card sales exceeded $25 million in 1993
and $250 million in 1994. By 1995 the market had ballooned to $650 million, and conservative
estimates now place phone card revenues at $1 billion in 1996, and $2 billion in 1997.

Much of the credit for the pre-paid phone card's stellar growth has to do with the near limitless
demand for telecommunications services. Pre-paid phone cards tend to offer considerably lower
long distance rates than phone services such as coin, cellular and collect calling. Additionally
pre-paid card rates remain the same no matter what time or day the call is placed. However,
the greatest reason for the pre-paid card industry's meteoric rise has to do with the way
the cards reach the public. When pre-paid cards were introduced in the U.S. in the early 90's
the large phone companies used the traditional channel to market their cards to their customer
base. However, perhaps out of fear of cannibalizing their profitable and protected markets,
these companies sold the cards only half-heartedly and with limited success.

It was the small telecommunications companies, such as New Media Telecommunications of La Jolla,
Calif. that first recognized the broader appeal of the pre-paid card and moved to take the
product to markets that the big phone companies had never dreamed of. Coupling the pre-paid
card's relative low cost and its ability to act as a pocket-sized billboard, innovative telecom
companies began marketing the cards as promotional items, as premiums or incentives, as
collector's items and tourist souvenirs, and as retail products like gum, film and razors.

New Media Telecommunications, as well as some of the other more advanced pre-paid card providers
have also made in-roads in non-profit industries. A number of non-profit organizations now offer
pre-paid phone cards as fund-raising incentives with a double payback. Fund-raisers first use
the card as an incentive for donations. Later, every time one of their pre-paid card holders
makes a call with their card, the non-profit organization receives a portion of the proceeds.

What the Future Holds

The combined reach of the new markets has expanded distribution of the cards from a few hundred
thousand in 1992 to over 70 million in 1995, and the cards are now sold through virtually
every conceivable channel, from convenience stores to vending machines. Still, only one in five
people in the U.S. is even aware of the pre-paid phone card. However, as market awareness
builds, experts predict more than half a billion pre-paid cards will be in circulation by
1997. Additionally by the end of the decade the pre-paid card will almost certainly replace
collect calling and coin pay phones as the preferred method of placing calls away from the
home or office.

Finally, with the new environment created by the Telecommunications Act of 1996, expect
pre-paid phone cards to offer a plethora of new services in addition to traditional telephone
calls. Pre-paid internet and world-wide web accounts, cellular phone service, international
callback, and a variety of audio, text and digital information and entertainment services
will all be within reach of pre-paid phone card holders within the next few years.

Given the low market awareness and the competitive, highly-charged environment of the pre-paid
phone card, industry revenue estimates of $3 billion by the year 2000 seem extremely conservative.
If history serves as an accurate guide, revenues of $10 billion or more by the turn of the century
are not inconceivable. And it's the nimblest and most innovative of the small telecommunications
providers who stand to reap the lion's share of those profits.